The Bank Of Spain accepts that the Spanish property market bottomed out in 2014, but still has serious doubts about the sustainability of any recovery, with three main worries in mind.
2014 brought to a close the “drastic reduction in size and wide-scale price correction,” of the last few years, says the Bank of Spain (BOS) in a new report, but worries the next phase of the cycle is beset by uncertainties, in particular the housing glut – with excess inventories built in the wrong place – and negative demographic trends with implications for housing demand.
In its 2014 annual report, the Bank of Spain points out that, after six years of contraction, the residential market has experienced small positive changes since the beginning April last year. As an example of these, the Bank cites the slight rise in both property sales levels, and new-build planning approvals, whilst conceding that they both started from a low base, which makes their growth less impressive.
As far as property prices go, the Bank says they bottomed out in Q1 last year, ending 2014 with a year-on-year increase of 1.8 per cent (data from the Spanish Institute of Statistics (INE)). However, that was after crashing 36 per cent in nominal terms, 44 per cent in real terms since the peak.
Another figure the BOS provides to illustrated how far the Spanish property industry has fallen since it was the darling of the Spanish economy is the residential sector’s share of GDP, which has collapsed by 68 per cent, to just 4 per cent in 2014.
The BOS points highlights three main concerns that threaten to derail the next phase of the Spanish property market cycle, which would normally be growth after contraction.
1. High housing inventories: the Bank says that it’s difficult to determine how the change of trend seen in 2014 will be reflected in a sustainable recovery of activity given the given volume of unsold properties.
2. The geographical distribution of unsold properties: the widest imbalances between supply and demand are concentrated in coastal areas where the building boom was most exaggerated..
3. Demographic changes: A declining population means the BOS expects demographic factors to gradually reduce demand for household loans and housing, which is bad news for the long-term health of the Spanish property market, especially in poor areas that don’t attract young families looking for jobs.